BoyarMiller - Review of Boilerplate Contract Provisions: Say What You Mean and Mean What You Say

Review of Boilerplate Contract Provisions:

Say What You Mean and Mean What You Say

Presented by:

Chris James & Jon Goch

BoyarMiller 713.850.7766

[email protected] [email protected]

HYLA - Houston Young Lawyers Association March 4, 2015

1. Arbitration Clauses

2. Representation Clauses

3. Choice of Law / Venue Clauses

4. Jury Waiver Clauses

5. Limitations on Liability Clauses

6. Reformation Clauses

7. Clauses Regarding the Recovery of Attorneys’ Fees

8. Clauses Regarding Injunctive Relief

CONTRACTUAL CLAUSES TO COVER

ARBITRATION CLAUSES CLAUSE NO. 1

Generally, not recommended.

Useful if counterparty is a foreign entity, particularly in a commercial contract.

If used, a broad clause with language such as “arising out of” or “in connection with” the “agreement” will ensure that the arbitration touches all matters related to the agreement.


Narrow vs. Broad Arbitration Clauses Narrow clauses limit the scope of arbitration to specifically identified

matters. Broad clauses widen the scope of arbitration to all disputes that

touch matters related to the contract. ― Broad clauses use language such as: “any and all claims,” “arising out of,”

“relating to,” or “in connection with” the agreement.

Who is subject to an Arbitration Clause Signatories to the agreement. Any other party who meets the agreement’s definition of “party”.

― In re Rubiola, 334 S.W.3d 220 (Tex. 2011)


Example: If Buyer is an entity formed under the laws of a foreign country, or is a foreign person, and a dispute arises between the parties relating to this Agreement, the parties agree that such dispute may also be resolved by binding arbitration under the International Arbitration Rules of the American Arbitration Association, by one arbitrator appointed in accordance with such rules (“Arbitration”).

The Arbitration proceedings shall be held in Houston, Texas, United States of America, and the laws of the country where Buyer was formed (or where such foreign person resides, as applicable) shall apply. The Arbitration proceeding shall be conducted and the award shall be granted in the English language. All costs and expenses incurred with respect to any Arbitration shall be allocated to a party or the parties as determined by the arbitrator.

REPRESENTATION CLAUSES CLAUSE NO. 2

Who do you represent?

More importantly, who do you not represent?

When to use: ― Limited Liability Company Agreement ― Partnership Agreement

― Shareholder Agreement

REPRESENTATION CLAUSES CLAUSE NO. 2

Example: The parties hereto agree that in connection with the negotiation and execution of this Agreement, Hamlin, Hamlin & McGill has only represented the interests of Madrigal Electromotive GmbH and Herr Herzog and not the individual interests of any other Member of the Company.

The parties hereto acknowledge that they have been advised to consult with each such party’s own counsel regarding legal and tax related matters concerning this Agreement and have been afforded the opportunity to consult with counsel that such party deems advisable in connection with the negotiation and execution of this Agreement.

CHOICE OF LAW / VENUE CLAUSES CLAUSE NO. 3

Who has home court advantage? How do you compromise? Forum selection clauses are generally enforceable,

absent fraud, undue influence, or other extreme inequities. ― There are some exceptions, e.g., non-competition agreements with

Texas residents that purport to use another state’s laws.

Venue selection clauses are not presumably valid, and clauses that conflict with statutes are void as a matter of public policy.


Example (Drafting Party): (Drafting party and its attorney are in Houston, TX)

This Agreement and all claims or causes of action arising hereunder shall be governed by and construed in accordance with the laws of the State of Texas, excluding its conflicts of laws provisions, and in the event of a dispute arising under this Agreement, the Parties hereby submit to exclusive jurisdiction in the federal or state courts located in Harris County, Texas, and agree that venue is proper and convenient in such forum.


Example (Other Party): (Drafting party and its attorney are in OKC, OK)

This Agreement and all claims or causes of action arising hereunder shall be governed by and construed in accordance with the laws of the State of Oklahoma, excluding its conflicts of laws provisions, and in the event of a dispute arising under this Agreement, the Parties hereby submit to exclusive jurisdiction in the federal or state courts located in Oklahoma County, Oklahoma, and agree that venue is proper and convenient in such forum.


Example (Compromise): This Agreement and all claims or causes of action arising hereunder shall be governed by and construed in accordance with the laws of the State of Texas, excluding its conflicts of laws provisions, and in the event of a dispute arising under this Agreement, the Parties hereby submit to exclusive jurisdiction in the federal or state courts located in Dallas County, Texas, and agree that venue is proper and convenient in such forum.

This Agreement and all claims or causes of action arising hereunder shall be governed by and construed in accordance with the laws of the State of Delaware, excluding its conflicts of laws provisions, and in the event of a dispute arising under this Agreement, the Parties hereby submit to exclusive jurisdiction in the federal or state courts located in Dover County, Delaware, and agree that venue is proper and convenient in such forum.

JURY WAIVER CLAUSES CLAUSE NO. 4

Jury waivers are valid in Texas – If: They are made “Knowingly and Voluntarily”

―Conspicuous and “crystal clear”. • Conspicuous – written or displayed such that a reasonable person ought

to have noticed i.e. capital letters and bold print. • Prima facie evidence of “knowing and voluntary.”

―Burden on party opposing to rebut the presumption.

Not procured through fraud ―Alleged fraud must relate specifically to the jury waiver and not

the entire contract.

JURY WAIVER CLAUSES CLAUSE NO. 4

Example: EACH PARTY HERETO EXPRESSLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

LIMITATIONS ON LIABILITY CLAUSES CLAUSE NO. 5

At what point can you say, “Okay, but I don’t have to pay for it”?

Direct versus Consequential Damages ― Direct damages are those that flow naturally and necessarily from a

breach of contract. ― Consequential damages are that result naturally, but not necessarily,

from a breach of contract.

Limitations clause are generally enforceable, although courts will look at the bargaining power of the parties.

Clause must be conspicuous.


Standard Clause: NOTWITHSTANDING ANY PROVISON HEREIN OR IN ANY WORK ORDER TO THE CONTRARY, IN NO EVENT SHALL COMPANY A BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL (INCLUDING LOST PROFITS), SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH AND SERVICE PROVIDED HEREUNDER, EVEN IF NOTICE WAS GIVEN OF THE POSSIBILITY OF SUCH DAMAGES AND EVEN IF SUCH DAMAGES WERE REASONABLY FORESEEABLE. The provisions of this Section 12(a) shall survive termination or expiration of this Agreement.


Further Protection: In no event shall World Wide Cup, Inc.’s liability to Frank the Tank Enterprises, LLC for loss or damage under this Agreement exceed the aggregate amount actually paid to World Wide Cup, Inc. under the Agreement. The provisions of this Section 12(b) shall survive termination or expiration of this Agreement.

REFORMATION CLAUSES CLAUSE NO. 6

Reformation clauses can hurt you Section 15.51 provides, in part, that “[i]f the covenant is found to be ancillary to or part of an otherwise enforceable agreement but contains limitations as to time, geographical area, or scope of activity to be restrained that are not reasonable and impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee, the court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographical area, and scope of activity to be restrained to be reasonable...”

However… In Sentinel Integrity Solutions, Inc. v. Mistras Group, Inc ., the Houston First Court of Appeals found that such a “right to reform” provision served as evidence that the employer knew the covenant was overly broad at the time it was written and allowed the award of attorneys’ fees to the former employee.

Fleming & Assocs., L.L.P. v. Barton, 425 S.W.3d 560 (Tex. App.--Houston [14th Dist.] 2014, pet. filed) Dispute between law firms involved in the Fen-Phen pharmaceutical

litigation over what expenses could be charged to a referring lawyer under the parties’ letter agreement

Fleming & Associates is a limited liability partnership Trial court awarded Barton Group its attorneys’ fees under section

38.001(8) Court of appeals reverses award of attorneys’ fees against Fleming

& Associates because it is not a “individual or corporation”

THE RECOVERY OF ATTORNEYS’ FEES CLAUSE NO. 7

A person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for: rendered services: performed labor; furnished material; freight or express overcharges; lost or damaged freight or express; killed or injured stock; a sworn account; or an oral or written contract


“PERSON” Chapter 38 does not include any definitions. Section 1.002 of the CPRC provides that the Code Construction Act

applies to the construction of each provision in the CPRC, except as otherwise expressly provided by the CPRC

Code Construction Act defines the term “person” to include “corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity”


“INDIVIDUAL” AND “CORPORATION” “Individual” and “corporation” are not defined in the Code

Construction Act or in Chapter 38 of the CPRC The court’s research did not reveal a definition of “individual” or

“corporation” that included any type of partnership Section 38.001’s predecessor statute provided that “any person,

corporation, partnership, or other legal entity” could recover fees from a “person or corporation”

“[W]hen, as here, specific provisions of a ‘non-substantive’ codification and the code as a whole are direct, unambiguous, and cannot be reconciled with prior law, the codification rather than the prior, repealed statute must be given effect”

Thus, under the plain language of section 38.001(8), a person may not recover attorney's fees against a partnership


BUT…Prevailing party provisions are counter-productive with regard to non-competes Section 15.52 – Preemption of Other Law. The criteria for enforceability of a covenant not to compete provided by Section 15.50 of this code and the procedures and remedies in an action to enforce a covenant not to compete provided by Section 15.51 of this code are exclusive and preempt any other criteria for enforceability of a covenant not to compete or procedures and remedies in an action to enforce a covenant not to compete under common law or otherwise.

An employer enforcing a 15.50 covenant will not be entitled to an award of attorneys’ fees.


BUT…Prevailing party provisions are counter-productive with regard to non-competes In Glattly v. Air Starter Components, Inc., the Houston First Court of Appeals upheld the trial court’s decision refusing to award attorneys’ fees in favor of the employer enforcing the non-compete even where the employment agreement at issue contained a prevailing party provision.

The First Court of Appeals made three important conclusions regarding Section 15.52: It does not contain a provision that allows employers to recover attorneys’ fees;

It expressly states the remedies in the Act are the exclusive remedies; and

It expressly states that it preempts any other remedies in an action to enforce a covenant not to compete.


BUT…Prevailing party provisions are counter-productive with regard to non-competes An employee defending against enforcement of a 15.50 covenant may be entitled to an award of attorneys’ fees if successful in such defense in three ways: Under the statute, if the employee shows that the employer knew at the time of

execution of the agreement that the covenant did not contain restrictions that were reasonable and the employer sought to enforce the covenant to a greater extent than was necessary to protect the goodwill or other business interest of the employer; or

Pursuant to a declaratory judgment action seeking a declaration that the covenant is not enforceable.

Potentially, in defending against an action to enforce a covenant, where the agreement itself has a prevailing party provision.


Lasser v. Amistco Separation Prods., ___ S.W.3d ____(Tex. App.--Houston [1st Dist.] Feb. 6, 2014, no pet. h.) The First Court of Appeals dissolved a temporary injunction order

that sought to enforce contractual non-compete and non-solicitation obligations because the order was both not specific enough and overbroad ― The order failed to “identify, define, explain, or otherwise describe” what

constituted “confidential information” that Lasser was prohibited from disclosing. Thus, these provisions did not provide adequate notice to Lasser as to what conduct he was restrained from performing and left him to speculate what conduct might satisfy or violate the order.

― The Court also found that Part (c) was impermissibly overbroad under Rule 683 because it enjoined activities that Lasser had a legal right to perform, such as deleting electronic records and files unrelated to the subject of the lawsuit.

CLAUSES REGARDING INJUNCTIVE RELIEF CLAUSE NO. 8

Also keep in mind that liquidated damages can negate your request for injunctive relief. An applicant must prove there is no adequate remedy at law,

meaning damages cannot be calculated. vs. Liquidated damages that specify the amount of damages that one

party will receive if the other party breaches the agreement.


Example letter when hiring new employees: We are pleased to offer you the opportunity to work for [EMPLOYER] as set forth in the attached offer letter. However, we are requiring that you provide certain assurances prior to accepting employment with us.

Specifically, [EMPLOYER] requires you to agree and sign this document prior to employment, affirming that:

You do not have any agreement with your current and/or former employer that would limit your ability to work for [EMPLOYER].

You will not rely upon, use, or disclose any non-public information acquired from your current employer or from any other prior employers, whether or not formally designated as by such current or former employer as trade secrets, proprietary, confidential, or private.

You have not taken and do not have in your possession any non-public information acquired from your current employer or from any prior employers, and you will not bring nor use any such non-public information in your employment with [EMPLOYER].

If you have any further questions regarding the content of this requirement, I will be happy to discuss them with you. If not, we would appreciate your acknowledgement of and agreement with the above information by signing below.


Questions?

Chris James Jon Goch

BoyarMiller

713.850.7766 [email protected] [email protected]

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BoyarMiller - Review of Boilerplate Contract Provisions: Say What You Mean and Mean What You Say